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In 2012, the colocation industry projected a 30% increase over the next five years. And why not? The industry has several things on its side – the growth of cloud, the increasing digitalisation of almost everything, the ever-decreasing cost of bandwidth, the drive to outsourcing, the need for low latency communications with guaranteed packet transit times, and the green agenda which favours specialised operators over in-house data centres to mention just a few points.

As we hit 2014, almost at the halfway point of that five year prediction, the cloud continues to be a driving theme – as it has very clear and big advantages for software vendors. Instead of selling software as a single package plus support, the vendor can now sell it repetitively every month and, over the life of the package, make far more revenue and profit for a given product development.

At the same time, the customer’s data is held by the software vendor, not the customer – which gives the software vendor a bigger lock-in of that customer. Meanwhile the user gets flexibility and scalability, and lower costs for appropriate applications. But even the cloud resides somewhere physical eventually, and creates further demand for colocation data centres in which this ephemeral activity eventually hits the silicon.

Bandwidth will cost less at the end of 2014 than it did at the beginning, just as it has in every recent year. The days of £150 per Mb seem like a distant dream now, but they were only seven years ago. Hardly ever has a mature industry seen its selling prices decrease by over 90% in such a short time.  At the same time, the anecdotal evidence is that the growth of bandwidth is equalling the decline in price (i.e. halving the price doubles the demand) so the carriers are surviving, but being CEO of a data or voice carrier will continue being one of the world’s most terrifying jobs.  Those that survive can look forward to a time when consolidation of the carriers is likely to get more ferocious.

Quality and performance of bandwidth continues to becoming ever-more important. In particular, latency is a more critical and more public issue. Financial trading houses running algorithmic trading can win or lose millions on being a millisecond ahead of, or behind, their competition – and will seek out carriers and colocation facilities in the right geographical locations, to gain that little advantage.  Equally, consistency of latency is important for real-time applications such as telephony, where packets have to arrive with consistent time delays so they can be reassembled in the right order.

Over the next few years, we can all look forward to working harder and writing more technical proposals to achieve the same levels of business – and that applies not just to the colocation industry, but to its customers and to its customers’ customers.



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